18 December 2020 India | Industrials | Pre-Deal Note

MTAR Technologies Limited

Reaching for the skies

MTAR Technologies Ltd (MTAR) is a leading precision engineering solutions company with Sandeep Tulsiyan
diverse revenue streams spread across sectors such as nuclear (14.3%), space and defence sandeep.t ulsiyan@ jmfl .com | +91-22-66303085

(18.4%), clean energy (64.3%) and others (3%). While the company has contributed
materially to the development of Indian Nuclear and Space programmes in the past, its
differentiated capabilities lie in providing complex quality components and assemblies in
stipulated timelines and reasonable costs as well as develop import substitutes to the
sectors catered to. It has driven long standing relationships with not only premier Indian
institutions like NPCIL (16 yrs), ISRO (30 yrs+) and DRDO (40 yrs+), but also leading global
clean energy company Bloom Energy (9 yrs). The company is witnessing an accelerated
growth profile across all its end user markets, led by continuous technology advancement (in
clean energy), favourable government policies (nuclear energy) and capacity augmentation
by commercial sector (space). MTAR has grown its order book over past 2 years at a
rapid pace of 30.8%
CAGR, currently (Nov’20) at INR 3,565mn (1.67x FY20 sales) and it aims to further
strengthen its portfolio by entering new areas like sheet metal manufacturing, specialised
fabrication, roller screws and electrolysers. With an established base of 7 manufacturing
units and an experienced management team, the company registered strong
revenue/EBITDA CAGR of 16.8%/34.8% over FY18-20, while maintaining healthy cash flows
(FCF/EBIT: 61%) and return ratios (pre-tax RoCE: 19.8%).
 Steadily growing order book presents a healthy growth profile: MTAR is a leading player
in Indian precision engineering space, having a diversified revenue base across three main segments
namely- Nuclear (14.27%), Space and Defence (18.4%), Clean Energy (64.34%) and Others
(2.99%). The company has grown its order book at 30.8% CAGR over FY18-20 to INR3,451mn
(1.61x TTM sales), providing a healthy revenue visibility.
 Macro trends point towards positive momentum in key sectors: Continuous upgrade in
technology, favourable government policies and capacity augmentation is likely to drive
demand for precision industry. However, key markets of MTAR are witnessing an accelerated
growth such as a) Space: expected to growth at 7.5% CAGR over FY21-25E vs -12.8% CAGR
during FY17-21E, led by reducing launch costs and a rapid growth in commercial segment for
satellite application and services like GPS, satellite internet, etc.
b) Nuclear: proposed capacity addition entails 8% CAGR over CY19-25 vs 5.4% CAGR
generation growth during past 5 years, led by improved government focus on the sector and
rising carbon neutrality targets and c) Clean Energy: to grow at 14.5% CAGR vs 15% CAGR
during past 4 years, as higher volume growth of 35-40% in future is likely to be offset by
annual cost decline of 15%.
 Entering new business areas through R&D and investment: Besides a healthy growth
outlook in its existing businesses, MTAR is also setting up one manufacturing unit at Adibatla
(Hyderabad) to undertake sheet metal manufacturing for ISRO, Bloom Energy and other
customers and specialised fabrication jobs for various MNC and Indian companies. It is also
investing in development of roller screws, an import substitute.
 Improving return ratios financials and steady cash flow generation: MTAR has grown
revenue and EBITDA at a robust pace, clocking 16.8% and 34.8% CAGR respectively over past 2
years. Despite being in a capital intensive industry, the company has consistently generated free
cash flows over FY18-20 (OCF/EBIT: 97%; FCF/EBIT: 61%) and improved its pre-tax RoCE from
9.6% in FY18 to 19.8% in FY20.

Key risks: a) Client concentration risk stands high as share of revenue from top 5 customers stood at
87.31% in FY20, b) Budget cuts or delays by government to NPCIL, ISRO and DRDO may
impact MTAR, which derives a substantial portion of order inflows from these institutions, and c)
Technology risk may hamper future growth profile due to probability of product failure and
competition in new market segments.

NO PART OF THIS RESEARCH MAY BE REPRODUCED OR SENT INTO THE UNITED STATES OR CANADA, THE PRC OR JAPAN OR TO ANY CANADIAN, PRC OR JAPANESE
RESIDENT OR TO ANY OTHER COUNTRY OR ITS RESIDENTS WHERE IT WOULD VIOLATE APPLICABLE SECURITIES LAWS BY ANY MEANS WHATSOEVER. FAILURE TO
COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF LAW
JM Financial Institutional Securities Limited

NO PART OF THIS RESEARCH MAY BE REPRODUCED OR SENT INTO THE UNITED STATES OR CANADA, THE PRC OR JAPAN OR TO ANY CANADIAN, PRC OR JAPANESE
RESIDENT OR TO ANY OTHER COUNTRY OR ITS RESIDENTS WHERE IT WOULD VIOLATE APPLICABLE SECURITIES LAWS BY ANY MEANS WHATSOEVER. FAILURE TO
COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF LAW
MTAR Technologies Limited 18 December 2020

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Table of contents
Contents Page No.

Focus Charts: Industry 5

Focus Charts: Company 6

Investments Thesis 7

Business Overview 16

Management Team 19

Key Risks 20

Clean Energy 21

Indian Space Industry 26

Indian Nuclear Industry 30

Indian Defence Industry 36

Financial Tables 39

Glossary
ISRO - Indian Space Research Organisation
NPCIL - Nuclear Power Corporation of India
DRDO - Defence Research and Development Organisation
SSLV - Small Satellite Launch Vehicle
CMM - Co-ordinate Measuring Machines NDT
- Non-Destructive Testing
CNC - Computerized Numerical Control
FDI - Foreign Direct Investment
CAGR - Compounded Annual Growth Rate
MW - Megawatts
GWe - Gigawatt Electrical
MoU - Memorandum of Understanding

Notes and Definitions

Net Sales = Revenue from Operations
EBITDA/operating profit = Net sales – Cost of materials consumed –– employee expenses – sub contract – power and
fuel – other expenses - provisions
RoE – Net profit / Net worth
Net worth – Share capital + Reserves and surplus + Deferred tax liabilities RoCE –
[EBIT*(1-Current Tax Rate)] / Capital employed
Capital Employed = Net worth + Total Loans
Dividend payout = (Dividend + Dividend tax) / Net profit
Net working Capital – (Current assets less cash and equivalents) – Current liabilities NWC
days – NWC/Net sales * 365 days
Net debt-Equity – Net debt – (Total loans – cash and bank balances); Total Equity – (Share capital + Reserves and
surplus + Deferred tax liabilities)
Operating cash flow from operations (OCF)=– (PBT+ Depreciation+Net interest expense+increase in working capital
+ other items-taxes paid)
Free Cash flow (FCF) = (OCF – purchase/sale of fixed assets)
Focus Charts: Industry
Exhibit 1. Focus charts for the Industry
Fuel cell installations in MWs Growth in the fuel cells industry

Space equipment market to grow at 7-8% CAGR over FY21-25P Break-up of the space equipment budget between commercial and military

Increase in nuclear power capacity in India Nuclear power – maintenance and refurbishment market growth

25
22.06

20
10.50

15
GW

5.30
10
6.25

0
Current Capacity Under construction Planned Total Capacity

Defence spends likely to touch INR 6,000bn by FY25E Share of capex in defence spends increases to 23%

Source: CRISIL Research

Focus Charts: Company
Exhibit 2. Key charts
Revenue break-up Order book position at end-Nov’20

Others Clean Energy Space & Defence Nuclear Order book - INR 3,565mn

1% Nuclear Space & Defence Clean Energy

100% 3% 3%
6% 5%
90%

80%
47%
70% 49%
64%
25% 26%
61%
60% 75%

50%

40% 21%
16%
30%
20% 18%
20%
29% 30% 49%
10% 17%
13%14%
0% 5%
FY18 FY19 FY20 1HFY20 1HFY21

Revenue and YoY growth EBITDA and margin profile

Revenue YoY (%) EBIDTA OPM (%)

2,500 25% 700 40.0%
22% 35.6%

600 35.0%
2,000 20% 29.2%
17% 27.1% 30.0%
16% 500 25.5%
1,500 15% 25.0%
400 20.4%
INR mn

INR mn

20.0%
1,000 300
10%
15.0%
200
10.0%
500 5%
100 5.0%
1,837 2,138 537 580
0 0% 0 0.0%
FY18 FY19 FY20 1HFY20 1HFY21 FY18 FY19 FY20 1HFY20 1HFY21
319 311
998 1,220 355
1,566
Strong uptick in Pre-tax RoCEs OCF generation is solid

Pre-Tax RoCE (%) OCF/EBIT (%) FCF/EBIT (%)

25.0 120%

100%
20.0 88%
19.8
80%
15.0 17.0
INR mn

57%
60%
10.0
10.4 10.5
9.6 40% 33%

5.0
20%

67% 94% 112%

0.0 0%
FY18 FY19 FY20 1HFY20 1HFY21 FY18 FY19 FY20

Source: Company
Investments Thesis
Sturdy growth profile and a robust order book position
 Order book witnessed strong traction over past 2 years: MTAR has grown its order book
at 30.8% CAGR over FY18-20 to INR3,451mn (1.61x FY20 sales). A robust order book
provides healthy revenue growth visibility and profitability; given most contracts undertaken
are short term in nature, implying lesser probability of delays and cost overruns. The current
order book at end-Nov’20 stood at INR 3,565mn and is also diversified in nature, consisting of
orders from nuclear (26.3%), space and defence (48.5%) and clean energy (24.4%)
Exhibit 3. Order book growth and composition
Order book and growth trend Order book composition at end-Nov’20

Order Book OB/TTM Sales (x) Order book - INR 3,565mn

4,000 1.8
1.6
1.5 Nuclear Space & Defence Clean Energy
3,500 1.6

1.3 1.3
1.4
3,000
1.2
2,500 25% 26%
INR mn

1.0
2,000
0.8
1,500
0.6
1,000
0.4

500 0.2 49%

2,019 2,437 3,451 3,565
0 0.0
FY18 FY19 FY20 1HFY21

Source: Company, JM Financial

 Revenue growth profile has been sturdy over past 2 years: MTAR’s revenue grew at a
healthy pace of 16.8% CAGR over FY18-20, led by consistent order wins in its verticals and
timely execution of these orders. The growth was primarily led by a sharp ramp up in clean
energy vertical which grew by 32.4% in the same period, while nuclear energy revenue was
volatile. Space and defence grew at 22.6% CAGR. Sales outside India contributed
67.58%/52.71% in FY20/1HFY21 period, largely contributed by sales to Bloom Energy and an
Israeli defence technology company. However, the company has recently acquired a new
international customer in clean energy, thus strengthening its growth prospects from exports.
Exhibit 4. MTAR’s revenue share across sectors and geography
Revenues from clean-energy has been dominant Exports continues to remain the larger pie

Others Clean Energy Space & Defence Nuclear Exports Domestic

100%
6% 5% 3% 3% 1% 100%

90% 90%

80% 80%
47%
70% 49% 53%
70% 68%
61% 64%
60% 75% 60%

50% 50%

40% 21% 40%

16%
30% 30%

20% 18% 47%

20% 20% 32%
29% 17% 30%
10% 14% 10%
13%
0% 5% 0%
FY18 FY19 FY20 1HFY20 1HFY21 FY20 1HFY21

Source: Company
Macro trends point towards positive momentum in key verticals
 Large addressable market in clean energy: MTAR believes that the demand for clean
energy is going to rise significantly and have accordingly, commenced manufacturing
electrolyzers to produce methane-free hydrogen which can be used in multiple sectors to
generate power. While the company currently supplies hot boxes, which use methane to
generate power, it intends to supply the electrolyzers to existing customers and have initiated
the process of manufacturing the same. According to CRISIL Report, fuel cells, which use the
chemical energy of hydrogen or another fuel to produce electricity, are one of the evolving
distributed sources of electricity. Applications of the fuel cell technology have increased over the
past five years as electricity wattage installation logged 30 - 40% CAGR to reach 1,130 MW in
2019 from 300 MW in 2015. Increasing public-private partnerships will also result in faster
adoption of hydrogen-based applications. Bloom Energy signed a memorandum of understanding
with a central public sector undertaking, to deploy fuel cell technology in India by using natural
gas as fuel and is now targeting other markets outside United States, particularly the South
Korean market. Fuel cell energy market is expected to grow at 35-40% CAGR over next 5
years in volume terms, but declining prices of fuel cells is expected to result in 14-15% growth
in value terms.

Exhibit 5. Growth in fuel cell energy

Source: Industry data and publication, CRISIL Research

Exhibit 6. Comparative analysis of companies in the fuel cell segment

Product segment Product segment Operating Operating
CAGR 2017-2019 CAGR 2017-2019 Gross Profit Margins (%)
Company revenue 2017 revenue 2019 revenue 2017 revenue 2019
USD mn USD mn (%) USD mn USD mn (%) 2017 2018 2019

Bloom Energy 157 557 88% 376 786 45% -4.8% 15.8% 12.4%

Ballard Power 78 50 -20% 121 106 -6% 34.3% 30.7% 21.3%

Fuel Cell Energy 43 41.1 -2% 95.7 61 -20% 2.9% 3.5% -35.0%

Plug Power 63 150 55% 133 230 32% -27.2% 1.5% 12.2%

SFC Energy 61 65.5 3.30% 61.3 65.5 3.30% 32.6% 34.2% 34.4%
Source: Company

 Proxy play on increase in nuclear power capacity: According to the CRISIL Report, the
Government of India has sanctioned manufacture of 10 fleet reactors with a combined
generation capacity of 7,000 MWe. As MTAR is one of the few companies to have secured
orders from the NPCIL in the past, and have been able to deliver successfully on these mandates, it
is best placed to capitalize on this opportunity. MTAR has manufacturing facilities to undertake
projects for four reactors at any given point of time. It also supplies equipment used in the
nuclear reactors. We believe MTAR’s ability to develop manufacturing technologies using end-to-
end engineering capabilities under one roof which, positions the company better than peers.
 Exhibit 7. Increase in Nuclear power capacity in India

25
22.06

20
10.50

15
GW

5.30
10
6.25

0
Current Capacity
Under construction Planned Total Capacity

Source: NPCIL, World Nuclear Association, CRISIL Research. Note: GWe – Gigawatt electric

 The combined maintenance and refurbishment market during the period 2015-2019 was INR
5.5-6 bn and is estimated to reach INR 9-10 bn in the period 2020-2025. Over the next five
years, the maintenance and refurbishment market is expected to expand 1.6-1.7 times on account of
more reactors completing 18 years of lifespan. As of 2019, nuclear power plants with 2.6 GWe
capacity were in the refurbishment stage. This is expected to rise to ~3.5 - ~4.0 GWe by 2025.
We believe that MTAR is best placed to capture on this opportunity.
Source: Crisil Research
Exhibit 8. Nuclear Power maintenance and refurbishment market

 Foothold in space segment: The global space market opportunity amounts to USD 360 bn.
Increased use of space launch vehicles for satellites and testing probe applications, introduction
of space tourism and development of satellite internet system have propelled the growth globally.
In addition, ISRO intends to commercialise the Indian space sector and offer its products and
services to other countries. Further, ISRO has also announced the manufacture of a small
satellite launch vehicle (“SSLV”) that shall be able to lift satellites up to 500 kilograms in the
lower Earth orbit thereby making the space launches of ISRO, even more competitive for lower
payloads. ISRO is also working on certain major missions such as Gaganyaan, Aditya-1 and
Shukrayaan-1, among others. These activities are expected to provide an exponential growth to
the Indian players operating in the space sector and accordingly, we believe that MTAR’s order
book shall also grow significantly in the future.
Exhibit 9. India’s space budget and space equipment market
India’s space budget to report 8-9% CAGR over FY21-25 Space equipment market to grow

Source: Mordor Intelligence, CRISIL Research

 Indigenisation in defence to aid growth: The Indian defence sector is currently focused on
indigenization of various defence technologies in view of the recent announcement made on the
indigenization of 108 systems and sub-systems. The Government of India has also recently
announced import ban on 101 defence based items which will allow a wide spread
manufacturing base, introduce global best practices and aide job creation. (Source: CRISIL
Report). India’s defence spends have been rising continuously over the past five years and clocked
a robust growth of 6.9% over the same period (the highest amongst peers). Indian defence
sector is at an inflection point and several policies are being laid out by the Government of
India to promote the Indian manufacturing sector as indigenization of defence has always been
a core agenda of the Indian Government. The ‘Make in India’ campaign introduced in 2014 and
the ‘Atma-Nirbhar Bharat’ initiative, share similar goals with regards to development of
domestic defence industry. The objective behind these programs is to attain strategic
independence by reducing import dependence. In addition, in terms of the Defence Acquisition
Procedure, 2020, issued by the Ministry of Defence, Government of India, any order released by
the government shall mandatorily require 50% of indigenous content. Further, in terms of Press
Note No.4 (2020 Series) in relation to the ‘Review of Foreign Direct Investment (FDI) Policy
in Defence Sector’ dated September 17, 2020, the foreign direct investment limit in the Indian
defence sector was increased to 74% from 49% under the automatic route, and this is expected
to attract global players to India.
 We believe that MTAR’s experience and robust relationships with customers will keep an
advantage over certain of the other private defence companies in securing any potential orders.
MTAR shall also be one of the preferred suppliers in any potential defence offset transaction.
Exhibit 10. India’s defence spends and it’s share of GDP
Defence spends likely to touch INR 6,000bn by FY25E To be c.3.3-3.6% of GDP

Source: Crisil Research

Exhibit 11. Modernization budget of Indian Armed Forces
2019-20 (BE) (INR Bn) 2020-21 (BE) (INR Bn) % On-year Increase
Army 229.5 256.0 13.3%
Navy 221.0 256.2 15.9%
Air Force 363.7 390.3 7.3%
Total 814.2 906.5 11.3%

Source: Company

State of the art manufacturing setup and a wide product portfolio

 Expertise in precision engineering is a key enabler: MTAR develops and manufactures a wide
range of mission critical precision components with close tolerances (5-10 microns), for usage by
customers in the nuclear, space and defence, and clean energy sectors. It conducts stringent
testing and quality control at each stage of the production process to ensure that its finished
product conforms to the exact requirement of customers and passes all validations and quality
checks. Also, MTAR uses high precision quality inspection equipment such as 3D co-ordinate
measuring machines (“CMM”), laser measuring, optical alignment instruments, non-contact
measuring, and other such non- destructive testing equipment to ensure ideal quality. The company
also has experienced personnel who undertake procedures and inspections such as radiography,
ultrasonic, magnetic particle and dye penetrant at its non-destructive testing (“NDT”) facilities.

Exhibit 12. Manufacturing capabili ties

Type Level of expertise Equipment/Process

Manufacturing of precision components Close tolerance levels of 5-10 microns 7 Axis Mill Turns
5 Axis Vertical Machining Centres

4.5 Axis Machining Centres

Milling Centres

Turning Centres

Grinding Centres Tool

Room Machines

Deep Hole Boring and Honing Machines

Assembly and Testing Capabilities 10,000 Clean Class Rooms High and Low Temperatures tests
Vibration tests

Flow and Helium Leak Tests

Specialized fabrication facilities Meeting ASME and ASTM standards Conventional and orbital welding facilities
Vacuum Brazing

Water Jet

Plasma Cutting Facilities

Others Surface Treatment
Heat Treatment

Special Process Facilities

Source: Company

 Wide portfolio of products with deep customer relations: MTAR has, over the years,
developed a wide product portfolio catering to customers in diverse segments as a result of
which, it has been able to establish trusted and long-standing relationships with customers. Its
ability to provide quality products as per the customer specification, and consistent customer
servicing standards, has enabled MTAR to increase wallet share and customer dependency on
MTAR. For instance, within the nuclear sector, MTAR’s long standing relationship of over 16
years with NPCIL bears testimony to the Company’s ability to manufacture and supply
specialized products such as fuel machining head, bridge and column, grid plate and coolant
channel assemblies, not just for the new
 nuclear reactors, but also for refurbishment of the existing reactors. Also, it has, in the process,
created entry barriers for other players.
 Within the space sector, MTAR has established relationship with ISRO to whom it has been
supplying a wide variety of mission critical components and critical assemblies for its various
missions, for over three decades.
 MTAR also caters to customers in the clean energy sector through supply of power units,
specifically, hot boxes to Bloom Energy. MTAR has also invested in the development of roller
screws, which is an import substitute, and are involved in developing the associated technology.

Exhibit 13. Key products within each sector

Customer Sector Product Application
Involves manufacture and assembly of 600 components. Used for handling fuel bundles in nuclear
Fuel machining head reactors
Moves fuel machining head in X and Y axis directions to load and unload the nuclear fuel bundles in the
Bridge and column nuclear reactor
Consists of 1,758 holes in top and bottom plate and is used for resting the fuel sub-assemblies in prototype
Grid plate fast breeder reactor
Sealing plug, shielding plug, liner tubes and end
Involves assembly of large number of components and used in the core of civilian reactor
fittings
Nuclear sector The drive mechanisms are critical and even a slight deviation in the end product is not acceptable as they are used for
Drive Mechanisms regulating purpose and shutdown of nuclear reactors under normal and undesirable operating conditions
Top hatch cover beams and deck plate Requires high positional and dimensional accuracies assembly

Used for inspection in fuel machining vault. CHAS is one of the few products where the detailed design is also
CHAS developed by MTAR, apart from manufacturing and assembly
Ball screws and water lubricated bearings Import substitutes used in various assemblies such as actuators etc. in the reactor Base
shroud assembly and air frames Used in Agni missiles such as A1, A2 A3, A4, A5, A1 P.
Actuator assembly components Used in space launch vehicles
Components for LCA Actuators used in landing gear and flaps of LCAs
Various missile parts Used in various missile programs undertaken by DRDO
Used in satellites. Latchable series redundant valves (“LSRV”) is the example electro pneumatic valve, which is
Valves used in satellites and weighs between 300 - 310 grams
Space and Defence sectors
Electro-pneumatic modules
Liquid propulsion engines
Cryogenic engines (turbo pumps, booster Used in space launch vehicles – PSLV and GSLV for various space missions such as Chandrayaan-II and Mangalyaan
pumps, gas generators and
injector heads for such
engines)
Ball screws and water lubricated bearings Import substitutes used in various assemblies such as actuators etc. in space launch vehicles, missiles etc.
Clean energy sector Power units Acts as a reactor for fuel cells
Source: Company

Management strategy to enter new business areas may spruce up growth

 Broaden product portfolio and enter new areas: MTAR aims to leverage its proven
capabilities, experience, manufacturing facilities and quality control practices, to not only
expand its product portfolio in the existing segments but also enter new business segments.
Management aims to enhance capabilities and grow value chains to supply critical and
differentiated engineered products with a healthy mix of developmental and volume-based
production. Focus remains on customers in the nuclear, space and defence, and clean energy sectors.
In order to diversify into new markets, MTAR aims to selectively acquire capabilities such as
electrical and electronics that are complementary to operations. For instance, it entered into a
MOU with an entity to the extent of offering services in the field of electronics for all elector-
mechanical systems manufacture and
 development to be undertaken by MTAR. In addition, any potential acquisition will revolve
around enhancing the company’s engineering competence, increasing market share, achieving
operating leverage in key markets and strengthening cost competitiveness in the market.
 The establishment of a sheet metal facility at Adibatla in Hyderabad will allow MTAR to
undertake sheet metal jobs for ISRO, Bloom Energy and other customers. It also intends to take
up specialized fabrication jobs for multi-national companies and other leading Indian
organizations. It also plans to develop roller screws as well as the associated technology. Roller
screws is currently, an import substitute and once the development has been completed, according
to CRISIL Report, MTAR will, in India, be the first manufacturer of roller screws, while this
product shall be used for application in the nuclear, and space and defence sectors.
 Increasing share of exports: MTAR is focused on exports to international customers. For
instance, the team is involved in the manufacture of power units, specifically hot boxes, and in
the development and manufacture of hydrogen boxes and electrolyzers, to serve Bloom Energy.
MTAR also won a new customer in this space recently. In addition, it also supplies critical
defence products such as aluminium weldments and other machined components to international
customers including, an Israeli defense technology company.
 Revenues for FY20 from exports stood at INR 1,409mn, 67.58% of revenue. The key areas
which will drive export growth are a) adoption of clean energy in EU, USA, Japan and South
Korea b) defence offset partnership with certain global OEMs and c) MNCs focusing on
nuclear, space and defence. MTAR has entered into an agreement dated March 15, 2017, with a
marketing agency based in the United States, pursuant to which the agency is required to make
efforts to source global customers to MTAR and in return, it shall be entitled to commission of
5% upon the realization of orders from such new customers.
 According to the CRISIL Report, the government targets for clean energy, budgets allocations,
and incentives are the strongest driver for fuel cell market development. Various governments
globally are taking steps to establish hydrogen fueling infrastructure and Europe, United States and
Japan are regions with the strongest government support in the field of fuel cells. With growing
concerns over climate change, hydrogen is emerging as a clean solution that can help curb
carbon emissions globally and while support for hydrogen is steadily increasing within the
United States, many other nations are taking an active approach by implementing hydrogen-
focused strategies and investments. Bloom Energy, which is one of the major players in solid
oxide fuel cell space, has installed majority of the solid oxide fuel cell space installation in the
United States, and is now targeting the South Korean market. These, either individually or
combined, we believe, provide an opportunity for a significant revenue stream to MTAR.
 Experienced management at helm: MTAR is primarily led by P. Srinivas Reddy who has over
29 years of experience in the manufacturing space and is familiar with the intricacies and nuances
of niche engineering segment. In addition, the technical and corporate management team has
substantial experience. MTAR’s success is attributable to a strong management culture fostered by
an entrepreneurial spirit, each business vertical being managed by experienced and hands-on
segment heads having in-depth technical and industry knowledge of the segments that it caters
to. The mid-level management is supported by trained personnel and skilled workers who
benefit from its regular in-house training initiatives. Special emphasis is laid training and
guidance so as to enable such workers to perform with utmost efficiency and with minimum
failures.
 Notable R&D capabilities: In order to enhance product offerings, management has
leveraged the adaptability and manufacturing agility by continually investing in manufacturing
facilities including in R&D, over the years. We believe that the company’s R&D capabilities
have enabled it to keep abreast of technological developments in the precision manufacturing
industry thereby allowing it to have a focused approach on
 consistently upgrading the technology and the processes used in the manufacture of products.
R&D efforts include technologies and solutions that allow for manufacture cycle time reduction
and development of manufacturing processes and choice of tools and accessories. As of
November 30, 2020, MTAR employed 15 engineers, 6 designers and 4 technicians in it’s process
planning and methods team.

Strong financials provide credence to management’s ability to execute

 Consistent sales and profitability growth: Led by timely execution of its order book and
product supplies for clients, MTAR has reported a CAGR of 16.8%/34.8% in net sales and
operating profit. This has been possible due to MTAR’s strong relationships with its customers
Bloom Energy, NPCIL and ISRO.

Exhibit 14. Revenue and profitability

Net sales has grown 16.8% CAGR over FY18-20 EBITDA margins have significantly improved

Revenue YoY (%) EBIDTA OPM (%)

2,500 25% 700 40.0%
22% 35.6%

600 35.0%
2,000 20% 29.2%
17% 27.1% 30.0%
16% 500 25.5%

1,500 15% 25.0%

400 20.4%

INR mn
INR mn

20.0%
300
1,000 10%
15.0%
200
10.0%
500 5%
100 5.0%
1,566 1,837 2,138 998 1,220 319 537 580 355 311
0 0% 0 0.0%
FY18 FY19 FY20 1HFY20 1HFY21 FY18 FY19 FY20 1HFY20 1HFY21

Source: Company

Exhibit 15. Order book trends

Order Book OB/TTM Sales (x)
4,000 1.8
1.6
1.5 1.6
3,500

1.3 1.3 1.4

3,000
1.2
2,500
1.0
INR mn

2,000
0.8
1,500
0.6
1,000
0.4
500 0.2
3,451 3,565
0 0.0
FY18 FY19 FY20 1HFY21

Source: Company
2,019 2,437

 Strong balance sheet with healthy RoEs: As of Sept’20, MTAR’s net debt to equity remains
very comfortable at 0.10x while NWC remains at 160 days. RoEs for FY20 and 1H21 stood at
13.9% and 7.9% respectively. RoEs are mainly driven by strong net- margins of 14.6% in FY20
while asset turns are generally at 0.7-0.8x and leverage factor is at 1.1x.
Exhibit 16. DuPont analysis
FY18 FY19 FY20

Net Margin (%) 3.5 20.6 14.6

Asset Turnover (x) 0.7 0.7 0.8

Leverage factor (x) 1.2 1.2 1.2

RoE (%) 2.6 16.7 13.9

Source: Company

Exhibit 17. RoE and RoCE profile

RoEs continue to remain strong Sharp uptick in RoCEs
RoE (%) Pre-Tax RoCE (%)
18.0 25.0

16.0
16.7
20.0
14.0
13.9 19.8
12.0
15.0 17.0
10.0

8.0
10.0
7.9 10.4 10.5
6.0 9.6

4.0 5.0

2.0
2.6
0.0 0.0
FY18 FY19 FY20 1HFY21 FY18 FY19 FY20 1HFY20 1HFY21

Source: Company. Note the RoEs for 1H21 have not been annualised

 Strong cash-flow profile: Despite being asset intensive in nature, cumulative OCF/EBIT over
the last 3 years have been at 97% whereas cumulative FCF/EBIT has been lower at 61% over the
same period due to high capex in FY19/20.

Exhibit 18. NWC days and Cashflows

NWC days remain stable OCF/EBIT has been strong

NWC (INR mn) NWC days OCF/EBIT (%) FCF/EBIT (%)

1,200 200 120%
175
169 160 180
1,000 100%
160 88%
140
800 119 80%
120
INR mn

INR mn

600 100 57%

60%
80
400 40% 33%
60

40
200 20%
20
753 852 694 1,067 67% 94% 112%
0 0 0%
FY18 FY19 FY20 1HFY21 FY18 FY19 FY20

Source: Company
Business Overview
Company Description

Originally promoted by Mr Late P. Ravinder Reddy, Late K. Satyanarayana Reddy and P.

Jayaprakash Reddy, MTAR is a leading precision engineering solutions company engaged in the
manufacture of mission critical precision components with close tolerances (5-10 microns), and in
critical assemblies, to serve projects of high national importance, through precision machining,
assembly, testing, quality control, and specialized fabrication competencies, some of which have
been indigenously developed and manufactured. It offers products for the nuclear, space and defence,
and clean energy sectors. The team is now led by one of the Promoters, and Managing Director, P.
Srinivas Reddy, who has over 29 years of experience in the niche engineering industry catering to
nuclear, space and defence, and clean energy sectors.

In FY20, MTAR reported sales of INR 2.1bn, EBITDA of INR 580mn and profit after tax of INR
313mn. The operations of MTAR can be broadly classified under four business divisions a) clean
energy – 64.34% b) nuclear – 14.27% and c) space and defence – 18.4%. Exports contributed
th
67.58% to revenues while domestic was 32%. Order book position as of 30 November 2020 stood
at INR 3,565mn (1.67x FY20 sales).

Exhibit 19. MTAR’s revenue share across sectors and geography

Revenues from clean-energy has been dominant Exports continues to remain the larger pie

Others Clean Energy Space & Defence Nuclear Exports Domestic

100%
6% 5% 3% 3% 1% 100%

90% 90%
80% 80%
47%
70% 49% 53%
70% 68%
61% 64%
60% 75% 60%

50% 50%

40% 21% 40%

16%
30% 30%
20% 18% 47%
20% 20%
29% 17% 30% 32%
10% 10%
13% 14%
0% 5% 0%
FY18 FY19 FY20 1HFY20 1HFY21 FY20 1HFY21

Source: Company

Exhibit 20. Order book break-up

Order book - INR 3,565mn

Nuclear Space Defence

25% 26%

49%

Source: Company
Exhibit 21. Details of manufacturing facilities
Factory Products manufactured Sectors catered to Facilities offered

Unit 1 Complex nuclear assemblies manufacturing such as fuel machining head, thimble package, Nuclear, defence and aerospace Advanced computerized numerical control
top hatch beam, bridge and column and high end defence products such (“CNC”) machining and quality
as air frames, base shroud assembly for Agni missiles, among others control
Unit 2 Liquid propulsion engines such as Vikas engine, cryogenic engines, semi cryo engine, Space Advanced CNC machining, assembly,
electro pneumatic modules for use in polar satellite launch vehicle (“PSLV”) and specialised fabrication, quality control
geosynchronous satellite launch vehicle (“GSLV”) launch vehicles and satellite valves and testing
Unit 3 High volume nuclear components such as end fittings, liner tubes, products such as ball Nuclear, defence and aerospace Advanced CNC machining and quality
screws and WLBs and other nuclear site orders control
EOU Power units for supply to Bloom Energy and high end defence components to be supplied to Clean energy and export defence Advanced CNC machining, assembly,
an Israeli defense technology company special processes, and quality control
Unit 4 This is a supporting unit and undertakes rough machining - Rough machining

Unit 5 This is a supporting unit and undertakes surface and heat treatment - Surface treatment, heat treatment and
special processes
Unit 6 This is a supporting unit with fabrication facility and large clean rooms - Assembly

Source: Company

Exhibit 22. Machining Capabiliti es

S. No. Machine Total numbers Description and usage
available
1. Conventional / CNC turning 108 Used for a variety of turning operations to remove the excess material in the form of chips, from the external diameter of a work piece

2. Milling / CNC milling 62 Advanced CNC 7 axis mill-turns, 5 axis, 4.5 axis and 3 axis VMCs and horizontal machining centres (“HMCs”) are available for
producing a variety of custom-designed products
3. CNC machining centers 12 Used to perform drilling, milling and lathe operations to manufacture precision components such as air frames, covers etc.

4. Electrical discharge machining 6 Used for machining of hard metal that would be difficult to machine using traditional techniques
(“EDM”)
5. EDM drilling 2 Used to produce fast and accurate machining of customised small deep holes in precision components

6. Jig boring 28 Used to enlarge the holes of the machined components so as to make their diameters accurate to achieve the close tolerances required

7. Horizontal boring 8 Advanced horizontal boring machines are available to enlarge holes in a horizontal direction as per the given customer specification

8. Deep hole boring 9 Used to produce very deep precision holes

9. Drilling 13 Used to cut holes of circular cross section for precision machined parts

10. Grinding 60 Used to shape and finish the machined components

11. Planing 1 Used to produce accurate flat surfaces and cutting slots as per the given specifications

12. Cutting machines 6 Used to cut raw materials that are required to undergo subsequent machining processes to achieve the finished product

13. CNC wire cut 14 Advanced wire cuts available for production of small, detailed items that would be normally difficult to process through other
manufacturing processes
14. Honing 8 Used to improve geometric form of surface and surface finish

15. Special purpose machine 14 Used for special purpose operations

16. Straightening machines 5 Used wherever the precision components have to be straightened, bent/pre-tensioned

17. Thread grinding 13 Used to produce accurate threads in hard materials

Source: Company
 Exhibit 23. Product Manufacturing Cycle

Source: Company
Management Team
Exhibit 24. Directors
Mr. Subbu Venkata Rama Behara - He is the Chairman of the Board, and an Independent Director of the Company.
He holds a master’s degree in arts, with a specialisation in economics, from the Jawaharlal Nehru University and a post
graduate diploma in international trade from the Indian Institute of Foreign Trade, New Delhi. Apart from his association with our
- Company, he is a director on the boards of Ola Electric Mobility Private Limited, Greaves Cotton Limited and Ampere
Vehicles Private Limited, amongst others.
He is the Managing Director of the Company. He has been a director on the Board since March 11, 2015 and was appointed Managing
Mr. Parvat Srinivas Reddy -
Director on September 1, 2020.
He holds a bachelor’s degree in engineering, specialising in industrial production, from the University of Mysore and a master’s
- degree in science, specialising in industrial engineering from College of Engineering, Louisiana Tech University. He has over 29 years of
work experience.
Mr. Mathew Cyriac - He is a Nominee Director on the Board of the Company.
He holds a bachelor’s degree in engineering, specialising in mechanical engineering, from Anna University. He also holds a
- post-graduate diploma in management from the Indian Institute of Management, Bengaluru, where he was awarded the IIMB Medal for
securing the first rank in the course for the years 1992-1994.
- He has previously worked with Blackstone Advisors India Private Limited, and is currently a director on the board of Florintree
Advisors Private Limited.

Mr. Venkatasatishkumar Reddy - He is a Non-Executive Director on the Board of the Company.

Gangapatnam
He holds a bachelor’s degree in engineering, with a specialisation in mechanical engineering, from Bangalore University, and a
master’s degree in science, specialising in industrial engineering, from Bradley University. Apart from his association with our Company,
- he is a director on the board of Rasun Ace Infra Private Limited, Acecorp Group Private Limited and Magnatar Aero
Systems Private Limited.
Mr. Praveen Kumar Reddy Akepati - He is an additional Director on the Board of the Company.
He holds a bachelor’s degree in engineering, specialising in electronics and communication, from the Faculty of Engineering,
- Andhra University. Prior to becoming a Director of our Company, he worked with our Company for over 18 years, and has previously
served as our vice president of projects.
Mr. Gnana Sekaran Venkatasamy - He is an Independent Director on the Board of the Company.
He holds a bachelor’s degree in engineering, in the branch of mechanical engineering, from Madurai University, a master’s
- degree in engineering, with a specialisation in aeronautical engineering, from the Indian Institute of Science, Bengaluru and a doctorate
in philosophy from the Queen’s University of Belfast.
- He has previously served with the Defence Research and Development Organisation in various capacities, including as the Director of
the Advanced Systems Laboratory.
Mr. Vedachalam Nagarajan - He is an Independent Director on the Board of the Company.
He holds a bachelor’s degree in engineering, specialising in mechanical engineering, from the Faculty of Engineering, University of Madras
and a doctorate in science from Madurai Kamraj University. He has also been conferred an honorary doctorate in science from the
Madurai Kamra University. He had worked with the Indian Space Research Organisation for over 35 years in
- many capacities, including as a director of the ISRO Inertial Systems Unit and the Liquid Propulsion Systems Centre. He has also been an
honorary distinguished professorship at the Department of Space of the Vikram Sarabhai Space Centre. He has been a member of various
government committees, including the High Level Safety Review Committee of the Ministry of Railways, among others.
Mrs. Udaymitra Chandrakant Muktibodh - He is an Independent Director on the Board of the Company.
- He holds a bachelor’s degree in engineering, with a specialisation in mechanical engineering, from Indore Vishwavidyalaya. He has
formerly served with the Nuclear Power Corporation of India Limited in various capacities, including as its technical director.
He is an Independent Director on the Board of the Company. . He holds a bachelor’s degree in arts, with honours and specialising
Mr. Krishna Kumar Aravamudan -
in economics, from the University of Delhi, and is a certified associate of the Indian Institute of Bankers.
- He has previously served the State Bank of India as its managing director. He has also served as a director on the boards of Central
Depository Services (India) Limited, REC Limited, TVS Wealth Private Limited and SBI Payment Services Private Limited.
She is an Independent Director on the Board of the Company. She holds a bachelor’s degree in commerce, with honours, from

Mr. Ameeta Chatterjee - the University of Delhi, where she was awarded the M.C. Shukla Prize in 1993 for securing the highest marks in aggregate in the
business law and company law examinations, and a post graduate diploma in management from the Indian Institute of Management,
Bengaluru.
She has previously worked as the general manager of investments and acquisitions at Leighton Contractors (India) Private Limited. She
-
is currently a director on the boards of directors of Nippon Life Asset Management Limited and JSW Infrastructure Limited.

Source: Company
Key Risks
 Customer concentration Risk: As on September 30, 2020, MTAR catered to 35
customers. The contribution of top five customers as a percentage of revenue from operations
during the FY18, FY19, and FY20 was 90.04%, 89.00%, 87.31% respectively. The company
depends on a limited number of customers for significant revenue and a loss of one or more
significant customers or a significant reduction in demand for products from such significant
customers, failure to succeed in tendering for projects for customers in the future can adversely
affect business, financial condition, result of operations and cash flows.
 Reduction in government spending: MTAR depends significantly on orders from the NPCIL,
ISRO and DRDO. A decline or reprioritisation of funding in the Indian budget towards the
respective departments of the Government of India under which these customers operate, or
delays in the budget process will impact the company. Further, the liberalisation of the defence
or space sectors to allow the entry of private and foreign companies may increase the level of
competition.

 Changes in terms of contract: For tenders, competitive bidding process shall entail
managerial time to prepare bids and proposals for contracts and may require MTAR to resort to
price cuts in order to secure orders which may not be awarded to the company or may be split
with competitors. Following an award, the company may encounter significant expenses,
delays, contract modifications, or even loss of such orders if competitors protest or challenge
the orders.
 Claims and Liquidated Damages: MTAR’s contracts with customers typically provide for
liquidated damages for delays in delivery. The maximum extent of such liquidated damages
range between 5.00% and 10.00% of the value of the delayed portion, of the supplies of the
purchase order. The company may face claims by customers in respect of such defects, poor
workmanship or non-conformity to the customers’ specifications or expected quality in respect
of precision components and equipment manufactured by and such claims could be substantial.
 Warranty expenses can go beyond expected: MTAR generally extends a warranty period of
12 months to customers for new products from the date of delivery. It is also generally required
to give additional warranties for the time period between the completion of products and their
expected deliveries. Due to the length of the warranty period, the company may be subject to
claims from customers and may lead to additional costs if rectification work is required to
satisfy obligations during the warranty period. The warranty provisions may not be sufficient to
cover the costs incurred for defects. If the costs of any rectification works exceed the warranty
provisions made, the business, financial condition, results of operations and prospects may be
adversely affected.

 Stringent Labour Laws: Manufacturing activities for the company are labour intensive and
require management to undertake significant labour interface, and expose the firm to the risk of
industrial action. As on November 30, 2020, MTAR had 896 permanent employees and 244
contractual workmen. The firm is subject to a number of stringent labour laws that protect the
interests of workers, including legislation that sets forth detailed procedures for dispute
resolution and employee removal and legislation that imposes financial obligations on
employers upon retrenchment. The firm has two recognised
labour unions, MTAR Group of Employees Union, Unit –I, II, III, IV, V and EOU with
registration number B – 2883. MTAR has entered into a memorandum of settlement
dated March 5, 2020 with the union regarding the wages and other terms of employment of the
employees, in response to a charter of demands presented to the firm by the union. If MTAR is
unable to renew these wage settlement agreements or negotiate favourable terms, it could lead to a
material adverse effect on the business, financial condition and results of operations.
Industry Section

Clean Energy

 Fuel cell technology is one of the evolving distributed sources of electricity: Fuel cells are
deployed across stationary applications, such as primary power source and power back- up,
transportation, such as automobiles, buses, utility vehicles, and scooters and bicycles; and portable
power options for applications, including laptops, cellular phones, power tools, military
equipment, battery chargers, unattended sensors, and unmanned aerial and underwater vehicles.
 Stationary fuel cell systems are used for backup power, powering remote locations, stand- alone
power plants for off-grid towns and cities, distributed generation for residential and commercial
buildings, and co-generation (in which excess thermal energy from fuel cell process is used for
heat).
 Fuel cell-based distribution energy is still nascent, and is limited to niche applications and regions,
where challenges exist with regards to access to other sources of energy. Fuel cell stationary
application finds more relevance for commercial applications such as data centers and servers,
hospitals, cellular towers. To cite few examples of distributed energy produced by fuel cell, Bloom
Energy installed a 1.2 MW SOFC installation at Adobe's headquarters in San Jose in 2010.Over
the next decade several other commercial installation were built by players, Bloom Energy
being at the forefront. SOLIDpower, one of the players in fuel cell industry, provided ten fuel
cell generators (SOFC) that were installed above the server racks to power the data center
servers at Microsoft office in Seattle in 2017. Various companies such as Apple, Walmart,
Samsung, Google have opted for fuel cell power generation for servers or standalone unit
operations. In India, the solid oxide fuel cell on Intel’s Bengaluru campus uses natural gas a
primary fuel source to provide constant power to crucial systems like the data centers.
 The US has seen the largest deployment of fuel cell energy. Yet, the contribution of fuel cell-
based electricity is very low in overall electricity generation, at a minuscule 0.014% in 2019.
However, the pace of growth is robust at 12% CAGR between 2015 and 2019, to 150 MW.
However, this rapid growth was on a low base. As per AEO 2020, the share of fuel cell in
overall electricity production is expected to increase to 0.016-0.020% by 2025 to 185-200 MW.
Exhibit 25. Global electricity production by source
2018 2040

Source: IEA, World gross electricity production (By source for 2009 and 2018 – updated July 2020), Electricity generation by fuel and scenario, 2018-2040, IEA (2020), World Energy Outlook 2020, IEA, Paris
https://www.iea.org/reports/world-energy-outlook-2020, CRISIL Research
Fuel cells find application across sectors
Application type Portable Stationary Transport
Exhibit 26. Application of fuel cells across sectors
Typical power range 1 W to 20 kW 0.5 kW to 2 MW 1 kW to 300 kW

Technology type  PEMFC  PEMFC  PEMFC

 DMFC  MCFC  Smaller share -
 SOFC  AFC  DMFC and SOFC
 SOFC
 PAFC
Examples  Portable products  Large stationary prime  Material handling vehicles
(torches, battery, power and combined heat  Fuel cell electric vehicles
chargers) and power (CHP)
 Trucks and buses
 Small personal electronics  Small stationary
 Rail vehicles
(mp3 player, cameras)  Micro-CHP
 Autonomous vehicles (air,
 Military applications  Uninterruptible power land or water)
(portable soldier-borne supplies
 Ships and marine
power, skid-mounted
 Larger permanent applications
generators)
auxiliary power units
(APUs) (e.g. trucks and
ships)
 Electricity generation for
charging stations of
electric vehicle
Source: industry, CRISIL Research

Exhibit 27. Overview of fuel-cell technologies

Fuel cell type Applications Advantages Challenges

 Backup power  Solid electrolyte reduces

 Portable power corrosion and electrolyte
 Distributed generation management problems  Expensive catalysts
PEM
 Transportation  Low temperature  Sensitive to fuel impurities

 Specialty vehicles  Quick start-up and load

following
 Grid support P2P
 Sensitive to CO2 in fuel and air
 Military  Wider range of stable materials
allows lower cost components  Electrolyte management
 Space
AFC (aqueous)
 Backup power  Low temperature
 Electrolyte conductivity
 Transportation  Quick start-up
(polymer)
 Ideal for consumer goods such as  Ill-suited for powering large
 Portable consumer devices
mobile phones, digital cameras or vehicles
 Military
DMFC laptops
 Smaller vehicles such as  Limited power production
 Low noise and thermal
forklifts and tuggers capacity
signatures and no toxic effluent

 Suitable for CHP  Expensive catalysts

PAFC  Distributed generation  Increased tolerance to fuel  Long start-up time
impurities  Sulphur sensitivity
 High-temperature corrosion
 High efficiency
and breakdown of cell
 Electric utility  Fuel flexibility
MCFC components
 Distributed generation  Suitable for CHP
 Long start-up time
 Hybrid/gas turbine cycle
 Low power density
 High efficiency  High-temperature corrosion
 Auxiliary power  Fuel flexibility and breakdown of cell
SOFC  Electric utility  Solid electrolyte components

 Distributed generation  Suitable for CHP  Long start-up time

 Hybrid/gas turbine cycle  Limited number of shutdowns

Source: IEA, CRISIL Research
Review and outlook of fuel cell industry
 Fuel cells technology and the type of electrolytes used in fuel cell are constantly evolving. Fuel
cell are yet to achieve high volumes and economies of scale. Application of fuel cell have been
increasing due to fall in cost, but cost economies have still not established for mass adoption.
Commercial deployment has started in several regions of the world (e.g., Japan, United States,
Canada, Europe). Energy companies, industrial gas companies, original equipment manufacturers
for vehicles and other industry stakeholders have positioned themselves and established advocacy
groups (e.g., the Hydrogen Council) to take advantage of this potentially large and rapidly
growing market.
 Global deployment of large-scale fuel cells for stationary applications is currently dominated
by United States and South Korean markets, which together make up almost 95% of installed
capacity. Within the US, there are major differences in the approach taken at the state level,
with the majority of the capacity installed in only two states (California and Connecticut).
 India is a still a nascent market in terms of installation of fuel cell installation. Bloom Energy
along with other partners have conceptualised commercial real estate powered by SOFC using
natural gas at Whitefield Tower business-hospitality development in 2019. Intel office in
Bangalore also has fuel cell installation by Bloom Energy. India’s renewable energy ministry is
also exploring the launch of a pilot fuel cell bus project in North India. Fuel cell installation in
India will see rise in demand as fuel cell penetrates power generation market with improved
economies

Exhibit 28. Regional deployment of fuel cells

10%
EUR
44%
North America 44%
Asia

2-3%
Rest of
World

Source: Industry, CRISIL Research

Fuel cell market is growing at 15% CAGR

 Fuel cell manufacturing industry stood at an estimated USD 2.8 bn in 2019. Fuel cell market
logged 15% CAGR from 2015 to 2019 with increased R&D for commercial application of fuel
cell in niche areas of transportation and distributed stationary power. The increase in usage of
fuel cell for electricity generation has been supported by the decline in cost due to R&D and
economies of scale from higher production volume.
 Applications of the fuel cell technology have increased over the past five years as electricity
wattage installation logged 30-40% CAGR to reach 1,130 MW in 2019 from 300 MW in 2015.
Installation of fuel cells units / stacks crossed the 1 GW mark in 2019. In value terms, the
industry has grown at 15% CAGR to USD 2.8 bn in 2019 from USD
1.6 bn in 2015.

 In the current year, as per the International Energy Agency (IEA) estimates, global electricity
demand is expected to fall by 5% in 2020 on account of de-growth in global
 GDP output because of the Covid-19 pandemic and slowdown in global industrial and
commercial activities. A similar decline in expected in the fuel cell manufacturing industry for
the current year.

Review and outlook of fuel cell industry

 The fuel cell industry, in value terms, is expected to grow at 14.0-15.0% between 2020 and
2025 with the increase in volume and decline in cost. In volume terms or megawatt installation
for fuel cell industry is expected to grow strongly at 35-40% CAGR over the next five years to
reach 5,000+ MWs by 2025 as compared to 1,130 MWs in 2019 while cost is expected to
decline by 15-20% during the same period. Growth will be driven by the demand from
transportation application and stationary application in niche areas for power backup and
distributed reliable power generation. Though electricity generation from fuel cells will take
longer to form substantial share in the overall electricity production as the technology is still in
the growth phase of development. Adoption is expected to rise substantially only after the
technology achieves maturity in commercial applications and provides cost competiveness
compared with other renewable sources of electricity generation.
Source: Industry data and publication, CRISIL Research

Exhibit 29. Growth in fuel cell energy

Exhibit 30. Summary growth drivers for fuel-cells

Source: CRISIL Research

Competitive landscape in fuel cell industry
 The global deployment of large-scale fuel cells is currently dominated by the US and South
Korean markets, which together make up ~95% of installed capacity. In the fuel cell industry,
there is one specialist company that currently dominates the production of each fuel cell type
and its deployment. Fuel cell technologies are still in a growing phase and R&D investments
are supported by government policies and strategies towards environment and energy market.
 CRISIL Research has compared the major technology companies present in the fuel cell industry
for their business and financial performance
Company Office location End-use sector Production facilities
Exhibit 31. Key competitors in the fuel-cell business
Ballard Power British Columbia,  Transportation Canada – Three facilities
Canada  Material handing applications One million membrane electrode
Locations – Five assemblies and 10,000 stacks annually
(Canada, US, Mexico,
Denmark, China)

Bloom Energy US  Stationary power generation Newark, Delaware and Sunnyvale,

(California)

Fuel Cell Energy Connecticut (US)  Stationary power generation Connecticut (US) 100-200 MW
Germany (Europe)

Plug Power New York (US)  Hydrogen fuel cell turnkey Latham, New York (US) and
solutions for electric mobility and Spokane, Washington (US)
stationary power markets

AFC Energy England (UK)  Alkaline fuel cell and related -

technologies for modular power
generation

 Stationary power generation

Doosan Fuel Cell South Korea -
 Charging stations
Germany  Stationary power generation
Other Locations - (mobile power generation for
SFC Energy The Netherlands, Romania, and Canada
Netherlands, Romania mobility, defence & security, oil
and Canada. & gas and industry markets)

Source: CRISIL Research

Exhibit 32. Overview of Competition’s business operations

Company Fuel cell type Product line Regions catered to Geographic revenue

Ballard Power PEM Heavy duty modules, fuel China, Europe and California China – 32%
cell stacks, backup power Germany – 30%
systems, marine modules
US – 24%
and technological
(2018)
solutions
for fuel cell

Bloom Energy SOFC Stationary power US, Japan, China, India, and US – 70-75%
generation platform the Republic of Korea Asia Pacific – 23%
(2019)

Fuel Cell Carbonate-based fuel Stationary power US, South Korea, Germany, United States – 90-95%
Energy cells, SOFC generation platform England

Plug Power PEM Electric mobility and North America North America >80%
stationary power Europe Europe

AFC Energy AFC AFC technologies (no Europe -

commercialization )

Doosan Fuel PAFC Stationary power Korea, US -

Cell generation

SFC Energy DMFC and hydrogen Stationary power Germany, the Netherlands, North America – 39%
FC generation and power Romania and Canada Germany – 13.5%
supply solutions
Rest of Europe – 36.6%

Source: CRISIL Research

Indian Space Industry

 Indian space budget to see strong growth over FY21-25: The Indian space programme has
revolved around the Indian Space Research Organisation (ISRO). ISRO has been spearheading
India’s space programme. Formed in 1969, the Indian space agency started by launching payloads
of 30-70 kg and has reached a stage where it can launch a payload of 4,000 kg. As of 2019,
ISRO has successfully completed 118 spacecraft missions and 78 launch missions.
 ISRO has plans to expand its technological prowess in the near future with missions such as
Chandrayaan-3, Gaganyaan (human spaceflight mission), Aditya-1 (proposed mission to study the
Sun), Sukrayaan-1 (proposed orbiter to Venus) and a new port in Tamil Nadu for SSLVs. The
budget for Department of Space in the current financial year is INR 134.8 bn. It is estimated
that the space budget will attain a value of INR 185-190 bn by FY25 on account of planned and
proposed missions. ISRO conducted 14 missions in fiscal 2019 and more than 11 missions in
fiscal 2020. It hopes to complete 36 missions in fiscal 2021 and 31 missions in fiscal 2022. The
budget break-up suggests that investment in space technology constitutes a major chunk of the
overall space budget. and is likely to hold a majority in future budgets as well. The investment
share of space technology in overall expenditure has risen from 59.7% in fiscal 2016 to 72.4%
in fiscal 2021.

Exhibit 33. India’s space budget

Source: ISRO, CRISIL Research

Exhibit 34. India’s space budget break-up

Source: ISRO
Exhibit 35. ISRO’s past and future missions
Missions FY19 FY20 FY21E FY22E

Earth observation
2 4+2* 10 8
satellites

Communication
4 1+1* 3 3
satellites

Navigation satellites 1 0 2 2

Space science satellites 0 1 3 0

Technology
1 0 1 0
demonstrator
PSLV 4 4+2* 10 8

GSLV Mk II 1 0+1* 3 6

GSLV Mk III 1 1 1 0

SSLV 0 0 2 2

Gaganyaan 0 0 1 (unmanned) 2

Total 14 11+6* 36 31

Source: ISRO Annual Report FY20

Space Equipment Industry

 The satellite manufacturing and launch systems market in India is estimated to reach INR 46 – 48
bn by fiscal 2025, at a CAGR of 7-8% in the forecast period. Over the review period, India has
been successful in attaining reliability and cost-effective launch services. However, the rising
competition, improving technological prowess of other space agencies and private players
(especially of US), the global market share of India is expected to decline over the forecast
period. FY21 market has taken a hit due to the COVID-19 pandemic, which resulted in small
number of launches.
 Due to regulations, the commercial segment of this industry is virtually non-existent. The
proposed policies have changed the outlook for the commercial segment. The commercial segment
is expected to reach INR 8-9 bn by FY25. Given India’s military position with respect to its
neighbours, increasing military needs and rising prominence of satellite applications in military
use, the military and government segment will continue to hold majority of the market. The
military and government segment is expected to attain value of INR 37– 39 bn by FY25.
Revenue from the military and government segment is subject to the budget allocated by the
Government of India to the relevant defence agencies.
Exhibit 36. India’s space equipment market
Space equipment market to grow at 7-8% CAGR over FY21-25P Break-up of the space equipment budget

Source: Mordor Intelligence, CRISIL Research

Key growth drivers
 India's satellite launch services are highly cost-competitive and reliable. The launch rate success
of PSLV is 96%. In the last five years, ISRO has launched satellites from 26 countries.
Commercial arrangement contracts with 10 countries have been signed in the past five years.
Hence, in the forecast period, it is expected that foreign entities will seek out ISRO for satellite
launches of medium and small category.
 Start-ups are coming up in the space domain with significant technological prowess. With new
regulations, competition is expected to rise in upstream and downstream space activities
 With the possibility of private players owning satellite systems, as per draft SPACECOM 2020
policy, the demand for satellite manufacturing and launches will rise from the commercial end
as opposed to government investments. The forecast period for future will likely see a robust
growth in the domestic manufacturing industry due to rising demand from commercial entities
 With rising probability of private players being able to invest in space activities, there is a
likelihood of increased investment activity in the form of acquisitions, PE investments,
backward integration by private service providers (telecom, entertainment, etc)
 Government support for private players (in the form of technology transfer, infrastructure
support for launches etc) will aide end-to-end manufacturing set-up for satellites and launch
systems. Rising demand for small satellites and SSLVs will foster cost optimisation through
economies of scale and manufacturing efficiency
 Improving participation from private players is the key agenda for the government. A step in
this direction is the establishment of an outreach unit aimed at geospatial application at the
National Remote Sensing Centre. To boost innovation and research in the domestic industry, the
government aims to establish 12 space technology incubation centres. The Kerala state
government has also announced investment in a space technology park to promote R&D in the
sector
 The small and micro satellites market is gaining ground due to electronic miniaturisation
technology, reduced manufacturing time, its lightweight, and cost-effective nature. Thus, wider
coverage can be achieved within a relatively short timeframe. ISRO has initiated transfer of
technology (ToT) with regard to small satellites in order to support new space start-ups. In the
near term, we can expect a surge in demand for SSLVs, which can install the satellite in the LEO.
In light of these, it is expected that new players will enter the industry. Rising satellite demand
will, in turn, result in more opportunities for in-orbit upgrade and repairs. The growth of the
earth observation downstream market is expected to provide a further impetus to the satellite
manufacturing and launch industry
 ISRO has plans for 31 satellite missions over the next two financial years. These include earth
observation, communication and navigation satellites. A total of 32 launch missions have been
planned. These consist of PSLV, GSLV Mk II, GSLV Mk III and SSLV. ISRO has also outsourced
end-to-end production of 5 PSLVs to the private sector and a further order of 12 is on the cards
 Exhibit 37. Competitive Scenario in the Space segment
Segment Offerings
· Rocket motor casings
· Convergent and divergent nozzles
· Titanium gas bottles for liquid stages
· Titanium tanks for liquid upper stages
L&T 's Space
· Heat shield
div ision
· Core base shroud
· Solar deployment mechanism
· Reflector deployment mechanism
· Aerodynamic test facilities
· Air frame systems for defence
· Space engines & satellite thrusters
· Sheet metal brackets
Godrej and Boy ce's · Complex fabrication parts
A erospace · Tubes & ducts
engineering · Line replacement units
· Structures
· Rubber fuel tanks & seals
· Composites & special processes
· PSLV
· GSLV - MK II
HA L's A erospace
· GSLV - MK III
div ision
· Indian remote sensing satellites
· Indian national satellites
· Booster motor casings
· Strap-on motors
Walchandnagar
· Nozzles
Industries's Space
· Domes
launch v ehicles
· Handling rings
· Flex nozzle control tankages

Source: Company
Indian Nuclear Power Industry

 India’s share of nuclear energy very low: Currently, India has 22 operational reactors and an
additional seven are under construction. Even though, the country’s civil nuclear programme
started decades ago, its growth has been lacklustre compared with other nations. India’s
operational nuclear capacity is 6.255 GWe. Currently the share of nuclear power in India’s total
generation is 2.9%. This is significantly less compared with more advanced nations such as
France, the US and China where the share of nuclear energy is 70.6%, 19.4% and 4.6%,
respectively. After the 2009 nuclear deal, India’s standing as a non-proliferating country has
improved. India’s reactors have come under the International Atomic Energy Agency’s (IAEA)
safety protocols and subsequently India’s trade in nuclear-related items has increased.
Exhibit 38. Share (%) of nuclear electricity in total power generation (2019) for key countries

Source: IAEA, BP Statistical Review, World Nuclear Association, CRISIL Research. Note: TWh – Terawatt-hour

Exhibit 39. Share of Nuclear Energy

Source: BP Statistical Review, CRISIL Research. Note: TWh – Terawatt-hour

Exhibit 40. Share of reactor’s in India’s nuclear power capacity

PHWR forms 65% share PHWR to form 53% share

Source: World Nuclear Association, CRISIL Research. Note: GWe – Gigawatt electric
 NPCIL only player; India’s capacity to touch 10.2GWe by FY25: India’s installed nuclear
capacity as of 2019 is 6.255 GWe and it is expected to rise to approximately ~9.255 to
~10.255 GWe by 2025. Over the forecast period, the country’s nuclear power capacity is
estimated to register a CAGR of 7.5 – 8.5%.
 India doesn’t allow private participation in the nuclear power programme. Hence, state- run
Nuclear Power Corporation of India (NPCIL) controls all the operational, under construction
and planned reactors in the country. It rolls out maintenance contracts annually while
refurbishment contracts are given away every two years for reactors that have remained
operational for 17-18 years.
 India has commissioned only one reactor during 2015-2019. However, during the same period,
there were nearly seven reactors under construction which are expected to become operational
over medium to long term. These reactors together have a capacity of 5.3 GWe. CRISIL
research estimates that over the forecast period (2020-2025), ~3 to
~4 GWe nuclear capacity would become operational out of the currently 5.3 GWe under-
construction capacity. The government is planning to initiate work on fleet of nuclear reactors in
the near term in a bid to enhance its nuclear power generation capacity. There are nearly 14 new
reactors planned with a total capacity of 10.5 GWe. Tenders for these are expected to be
released in the near term in phases.
Exhibit 41. Under-construction reactors
Under-construction Construction
reactors Start State Type Gross capacity (GWe)
Kakrapar - 3 & 4 2010 Gujarat PHWR 0.7x2
Kudankulam - 3 & 4 2017 Tamil Nadu PWR 1.0x2
PFBR 2004 Tamil Nadu FBR 0.5
Rajasthan - 7 & 8 2011 Rajasthan PHWR 0.7x2
Total 7 units 5.3

Source: NPCIL, World Nuclear Association, CRISIL Research. Note: GWe – Gigawatt electric

Exhibit 42. Planned reactors

Reactor State Type Gross capacity (GWe)
Gorakhpur - 1, 2, 3 & 4 Haryana PHWR 0.7x4
Chutka - 1 & 2 Madhya Pradesh PHWR 0.7x2
Mahi Banswara - 1, 2, 3 & 4 Rajasthan PHWR 0.7x4
Kaiga - 5 & 6 Karnataka PHWR 0.7x2
Kudankulam - 5 & 6 Tamil Nadu PWR 1.05x2
Total 14 units 10.5

Source: NPCIL, World Nuclear Association, CRISIL Research. Note: GWe – Gigawatt electric

Exhibit 43. India’s nuclear power capacity

Source: CRISIL Research. Note: GWe – Gigawatt electric

  Overview of equipment’s for the new-build market: The new-build market consists of
contracts for new and under construction nuclear reactors. During the review period, only one
reactor was commissioned entailing a total investment of INR 110-120 bn. Of the overall
expenditure, INR 22-28 bn was equipment cost. The seven reactors which are under
construction are expected to be commissioned over this decade. Since the start of these projects,
it is estimated that these seven reactors together have entailed a total investment of INR 680-
720 bn. The equipment market share of this has been INR 130- 170 bn.
 The nuclear equipment industry in India is set to grow rapidly with the government sharpening its
focus on the sector. NPCIL is expected to roll out tenders for 14 reactors (planned expansion
market) in the near to medium term in a phased manner. The total investment for building these
reactors would be INR 1,760-1,800 bn. Of this, INR 350- 435 bn would be equipment market.
However, NPCIL’s orders to its suppliers depend on the continued availability of budgets
extended to the Department of atomic energy, under which it operates.

Exhibit 44. Costs in New build market

New-build market (Rs billion) Overall capital cost Equipment cost

Operational
Under-construction reactors**reactors* 110-120
680-720 22-28
130-170
Planned expansion (medium to long
term) 1,760-1,800 350-435

Source: NPCIL, CRISIL Research

Exhibit 45. Capital cost segmentation based on a 700 MWe of nuclear power plant

Source: World Nuclear Association

 Maintenance and Refurbishment market to almost double: The combined Maintenance

and Refurbishment market during the period 2015-2019 was INR 5.5-6 bn and is estimated to
reach INR 9-10 bn in the period 2020-2025. Over the next five years, the maintenance and
refurbishment market is expected to expand 1.6-1.7 times on account of more reactors
completing 18 years of lifespan. As of 2019, nuclear power plants with
2.6 GWe capacity were in the refurbishment stage. This is expected to rise to ~3.5 - ~4.0 GWe
by 2025.
 Exhibit 46. India’s maintenance and refurbishment market in nuclear power

Source: CRISIL Research

Competitive Scenario
 L&T’s Heavy Engineering Division: L&T Heavy Engineering manufactures and supplies
custom-designed equipment and critical piping to process industries such as fertiliser, chemical,
refinery, petrochemical, and oil & gas, as well as to sectors such as thermal and nuclear power.
L&T’s heavy engineering business segment is present in the nuclear space. It is capable of supplying
vital components such as pressurisers, reactor assemblies, steam generators, etc. L&T has a JV with
NPCIL, which fulfils the requirements of critical forgings employed in the nuclear sector. This JV
has a special forging facility with capacity up to 120 MT. It has the ability to transform scrap
steel into single piece ingots of forged alloy steel, carbon steel and stainless steel. Moreover, its
heavy engineering facilities across India are at par with international standards. L&T’s power
business also has interests in the nuclear sector. It has collaborated with MHPS, Japan to supply
turbines for the nuclear sector. It has facilities across three locations in India: Mumbai
(Maharashtra), Hazira and Ranoli (Gujarat).
 Godrej and Boyce: Godrej & Boyce Manufacturing Company Ltd is the flagship company of the
Godrej Group. It has diversified interests across sectors. Its Precision Engineering business has
been a strategic partner of NPCIL for more than 20 years. It has provided systems for various
reactors in India. The firm was integrally involved with the Kakrapar 3 reactor in recently. It is
capable of supplying custom built complex systems such as steam generators, heat exchangers, and
components for pressurised heavy water reactor (PHWR) and fast breeder reactor (FBR) based
nuclear power plants.
Exhibit 47. L&T’s offering in the nuclear equipment industry
Segment Offerings

 Steam Generators

 Reactor End Shields (PFBR)

 Reactor Vessels

- PHWR

- PFBR

 Plasma Reactor & Research Reactor

- Tokamak Reactor Vessel

- Deck Plate

- Fueling Machine

- Carriage and Trolley

Nuclear Power
- Test facility

 Heat Exchanger

 Spent Fuel Handling Equipment

- Spent fuel Canisters & Cask

- High Level Radioactive Waste Storage Tanks

- Dump tanks

 Heavy Water Production Equipment

- Distillation Columns & Trays

 Control Rod Drive Mechanism (CRDM)

 Fuel Transfer Arm & Tool Delivery System

Critical Piping  Nuclear Power Piping

 Modification, Revamp and Upgrades

 Process Plants Internals

- Reactor Tray Internals

 Power Plants
Process Plants
- Surface Condensers

- Flash Tanks

- HP Feedwater Heaters

- LP Feedwater Heaters
Source: Company Website
Exhibit 48. Godrej and Boyce’s offering in the nuclear equipment industry
Nuclear Power Segments Offerings

 Bridge and Carriage - 700 MWe Reactor

 Calendria - 700 MWe

 Drive Mechanisms - 500 MWe and 220 MWe

Pressurized Heavy Water Reactor (PHWR)  MAL FMAL Doors - 500 MWe

 New Fuel Magazine (STIB) – 220 MWe

 Shuttle Station (STIB) – 220 MWe

 Shuttle Transfer Stations – 500 MWe

Fast Breeder Reactor Equipment  Rotating Plugs of PFBR for BHAVINI

 Glove Box

Equipment for Research Labs  Toroidal Vacuum Vessel

 Microtron Assembly

 HP Feedwater Heaters

Heat Exchangers  LP Feedwater Heaters

 Closed Cooling Water Heat Exchangers

 Surface Condensers

 Piping Spools

 Deaerators

Miscellaneous  Steam Generators

 Pressurizer

 Distillation Column

 Moisture Separator Re-heaters

Source: Company Website

Exhibit 49. Financial comparison of the key players in nuclear power industry
Parameter MTAR L&T (consolidated) Godrej & Boyce (standalone)

Operating income growth

16.4% 8.3% 1.6%
(y-o-y)

Operating margin 28.50% 16.20% 7.40%

Net margin 14.00% 7.50% 2.00%

RoCE 19.20% 13.40% 4.70%

Interest coverage ratio 13.10x 2.5x 4x

Gearing ratio 0.10x 2.2x 0.4x

NCA/ total debt 0.86x 0.06x 0.14x

Source: Company Reports, CRISIL Research

Indian Defence sector
 Defence spends to be at >3% of GDP by FY25E: Over the next 5 years, we expect India’s
defence expenditure to witness a robust growth on back of rising strategic high-tech defence
procurement plans (for modernization of armed forces) in addition to steps taken for promotion of
local manufacturing of defence products. We expect a healthy defence expenditure to GDP
multiplier over the next 5 years to the tune of 1.7-1.9. In such case where the India’s GDP is
expected to grow at a 4-5% CAGR, the growth in defence expenditure is forecasted to post 7-
9% rise to reach at nearly INR 6,000-6,500 bn by 2025.
Exhibit 50. India’s defence spends and it’s share of GDP
Defence spends likely to touch INR 6,000bn by FY25E To be c.3.3-3.6% of GDP

Source: SIPRI, Ministry of Defence, CRISIL Research

Key growth drivers for defence

 Defence FDI Policy 2020 - The government has increased the FDI limit from 49% to 74% under
the automatic route so foreign players can have majority control of management and
operations. This is expected to attract more foreign players to set up their manufacturing plants
in India. In the aftermath of the same, the Indian government has released a list of 101 defence
items which shall be banned from imports. This will allow a wide spread manufacturing base,
introduce global best practices and aide job creation. The caveat here is that firms must ensure
the item being produced must be 50% indigenous.
 Defence Acquisition Procedure (DAP 2020) - Implemented to streamline the process of
defence procurement. Under this reform, with regards to the 101 banned defence import items
(ref. Annexure for entire list of items), only companies incorporated in India shall be eligible for
bidding. These can be subsidiaries of foreign companies but incorporated in India under the
new FDI norms. The government estimates that the Armed forces will likely spend around INR
4,000 Bn over the next 5-7 years for procurement of these 101 items through the domestic
route. The government is also working smooth implementation of the DAP 2020, in terms of
schedule and disbursement.
 Indigenization of defence - has always been core agenda of Indian government. The ‘Make
in India’ campaign introduced in 2014 and the recent Atmanirbhar Bharat initiative share
similar goals with regards to development of domestic defence industry. The objective behind
these programs is to attain strategic independence by reducing import dependence. The
overhaul of DPSUs and OFBs has been on the agenda to further facilitate private sector
participation. The Indian government’s funding for the next 5 years is expected to be USD 130
bn for defence procurement. The government is looking to achieve a target revenue of USD 25 bn
in terms of country’s defence manufacturing. DRDO has recently announced indigenization of
108 systems and sub-systems that include mini and micro UAVs, ROVs, uncooled NV-IR sights
for weapons (short-range), mountain footbridge, floating bridge (both metallic), mines
laying and marking
 equipment. DRDO shall also provide technology support to industries involved in this process

 Offset clauses - have been removed as they had a history of non-fulfilment especially with
regards to transfer of technology. This clause removal is likely to reduce the cost of
procurements from foreign entities
 Defence Industrial corridors - The Indian government has proposed plans for defence
industrial corridors, one in Uttar Pradesh and Tamil Nadu to push for higher indigenization
thereby creating opportunities for private sectors, MSMEs & start-ups
 Exports - Government is developing its defence export strategy to seize the export
opportunities especially in the developing regions of Asia, Africa and Middle East. The
backing of India government would make it much easier for private firms to bid for contracts in
these countries

 Focus on low tech sectors - The government is currently focussing on low-tech sectors such
ammunition, surveillance and tracking systems. These are relatively easier to manufacture
compared to key import items such as anti-submarine missiles, helicopters, naval guns etc.
Manufacturing these involve significant technological capabilities and investments and would
continue to remain a challenge given the removal of offset clauses. However the gradual
advancement by DRDO in the field of ballistic missiles, quick reaction surface to air missiles, anti-
tank missiles, rocket systems etc. shall cushion capability building exercise for high-tech
defence systems and weaponry.

Exhibit 51. Break-up of defence budget and capex spends

Break-up of India’s defence budget Share of capex in defence spends increases to 23%

Source: SIPRI, Ministry of Defence, India Budget Documents , CRISIL Research

 Modernization drive- The 3 armed forces have received an uptick in budget for 2020-21 with
regards to modernisation. The overall increase recorded was ~11% y-o-y. The Indian armed forces
are currently in the midst of a major modernisation drive. In 2019-20, the MoD signed nearly
~14 new contracts that include T-90 Tanks (INR 200 Bn), Anti- submarine warfare shallow
watercraft (INR 126 Bn) and Akash Missile System (INR 55.6 Bn). But due to financial crunch the
payment for these and other ongoing contract is getting delayed.
 The Indian Air Force has been revising their modernization plans in order to reduce their
dependence on imports and prefer more indigenous products to promote ‘Make in India’. In a
bid for the same, the IAF has handed out INR 380 Bn worth contracts for manufacturing 83
Light Combat Aircraft (LCA) Mk-1A and additionally is planning to indigenously develop fifth
generation advanced medium combat aircraft (AMCA) by 2032. 12 Su-30 MKIs will also be
licence-produced by Hindustan Aeronautics Limited (HAL) at an estimated cost INR 107 Bn.
 In the past 5 years, the resource crunch has led to armed forces cutting short or delaying their
planned procurement. The Navy, on account of budget constraints, cut back its planned
purchase of mine countermeasure vessels, early-warning helicopters, landing platforms docks
(LPDs) and maritime reconnaissance aircraft
Exhibit 52. Modernization budget of Indian Armed Forces
2019-20 (BE) (INR Bn) 2020-21 (BE) (INR Bn) % On-year Increase
Army 229.5 256.0 13.3%
Navy 221.0 256.2 15.9%
Air Force 363.7 390.3 7.3%
Total 814.2 906.5 11.3%

Source: Company

 Export opportunity - The government targets to reach the USD 5 bn mark (INR 350 bn) in
defence exports in next 5 years. India has been successful in upscaling the defence exports
agenda with major participation of private sector. However, its share of global arms exports is
miniscule ~0.2%. There exists a sizeable opportunity for arms exports from India especially in
the low-tech weapons (non-lethal equipment) and equipment space with selective medium/high
technology equipment like Brahmos missile, Pinaka multi-barrel rocket launcher, Advanced
Light Helicopter, naval craft/ships, Akash air defence system and Astra air-to-air missile.
 The target market would be selective and largely comprising of states in Africa and the Middle
East without any manufacturing capability and high import dependence from western countries.
The overhaul of ordnance factories and other Defence PSUs is paramount in terms of
modernisation, timeliness and quality to further aide exports from the public sector.
Source: Ministry of Defence, CRISIL Research

Exhibit 53. Defence export review over FY17-20

Financial Tables (Unconsolidated)
Profit & Loss statement (Rs mn) Balance Sheet (Rs mn)
Y/E March FY18 FY19 FY20 1HFY21 Y/E March FY18 FY19 FY20 1HFY21

Net sales 1,566 1,837 2,138 1,220 Shareholders’ Fund 2,055 2,350 2,251 2,448
Sales Growth 17.3% 16.4% 22.2% Share Capital 282 282 268 268
Other Operating Income Reserves & Surplus 1,773 2,068 1,983 2,181
Preference Share
Total Revenue 1,566 1,837 2,138 1,220
Capital
Cost of Goods Sold/Op. Exp 569 626 722 511 Minority Interest
Personnel Cost 446 435 516 236 Total Loans 198 287 291 417
Def. Tax Liab. / Assets
Other Expenses 232 239 320 118 131 0 53 85
(-)

EBITDA 319 537 580 355 Total - Equity & Liab. 2,384 2,637 2,595 2,951

EBITDA Margin 20.4% 29.2% 27.1% 29.1% Net Fixed Assets 1,541 1,678 1,668 1,691
EBITDA Growth 68.5% 7.9% -12.5% Gross Fixed Assets 2,645 2,825 2,875 2,939
Depn. & Amort. 112 112 120 61 Intangible Assets
Less: Depn. &
EBIT 207 425 459 294 1,123 1,203 1,324 1,384
Amort.
Other Income 9 22 44 6 Capital WIP 18 56 117 136
Finance Cost 45 45 48 29 Investments 0 0 0 0
PBT before Excep. & Forex 172 403 455 272 Current Assets 1,313 1,373 1,794 1,903
Excep. & Forex Inc./Loss(-) 0 13 0 0 Inventories 419 411 755 755
PBT 172 416 455 272 Sundry Debtors 490 504 616 720
Cash & Bank
Taxes 117 24 142 80 91 108 233 192
Balances
Extraordinary Inc./Loss(-) Loans & Advances 227 266 56 83
Other Current
Assoc. Profit/Min. Int.(-) 86 85 135 152
Assets
Reported Net Profit 54 392 313 192 Current Liab. & Prov. 469 414 868 644
Adjusted Net Profit 54 379 313 192 Current Liabilities 136 60 308 116
Net Margin 3.5% 20.6% 14.6% 15.7% Provisions & Others 333 354 560 528
Diluted Share Cap. (mn) 28.2 28.2 26.8 26.8 Net Current Assets 843 959 927 1,259
Diluted EPS (Rs.) 1.9 13.4 11.7 7.2 Total – Assets 2,384 2,637 2,595 2,951

Diluted EPS Growth 598.5% -12.9% -10.3%

Total Dividend + Tax 0 0 0 0
Dividend Per Share (Rs) 0.0 0.0 0.0 0.0
Cash Flow statement (Rs mn)
Y/E March FY18 FY19 FY20 1HFY21

Profit before Tax 172 403 455 272

Depn. & Amort. 112 112 120 61
Net Interest Exp. / Inc. (-) 0 0 0 23
Inc (-) / Dec in WCap. -118 -57 25 -368
Others 0 0 0 -1
Taxes Paid 117 24 142 12
Operating Cash Flow 49 434 459 -27
Capex -21 -273 -119 117
Free Cash Flow 28 161 340 91
Inc (-) / Dec in Investments 8 -54 -2 0
Others
Investing Cash Flow -13 -328 -121 117
Inc / Dec (-) in Capital 0 0 -179 0
Dividend + Tax thereon -45 -102 -170 0
Inc / Dec (-) in Loans 0 27 -64 -291
Others 4 -1 97 5
Financing Cash Flow -41 -76 -316 -286
Inc / Dec (-) in Cash -5 31 22 -196
Opening Cash Balance 0 91 108 233
Closing Cash Balance 91 108 233 192
 APPENDIX I
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